Mega Palm Sdn Bhd - 2007

MARC has affirmed the ratings of AAA(bg) and MARC-1(bg) to Mega Palm Sdn Bhd’s (MPSB) Bank Guaranteed Medium Term Notes (BG MTN) of up to RM70.0 million and Bank Guaranteed Commercial Papers (BG CP) of up to RM80.0 million respectively with stable outlook. The ratings reflect the strength of the unconditional and irrevocable bank guarantee provided by Malayan Banking Berhad (Maybank). Maybank’s financial institution rating reflects its dominant position in the domestic banking market and sound financial profile, underpinned by improving loan quality and sturdy capitalization.

MPSB is principally involved in property development, investment and management. MPSB is a wholly owned subsidiary of Country Heights Holdings Berhad (CHHB), through Country Heights Properties Sdn Bhd (CHP), MPSB is able to leverage on CHHB’s track record, management expertise and brand name. MARC draws comfort from the fact that CHHB has been in the property development industry for more than 20 years, carving a niche for itself in the upper market segment of the industry.

MPSB is the developer of a 196-acre freehold land known as the Country Heights Damansara Project which is located along Lebuhraya Damansara Puchong (LDP) highway and surrounded by established developments such as Bandar Utama, Damansara Perdana, Mutiara Damansara and Bandar Sri Damansara in Petaling Jaya. The development is accessible via two highways, namely the LDP and Pencala Link. MPSB’s ability to charge a premium for the price of the development land is strongly influenced by its successful differentiation strategies of its strong marketing arm as well as strategic location of the project site.

The first phase of the development, comprises 396 vacant bungalow lots of which 342 lots have been launched and 80% of the launched units have been sold. Total net sales value of the 272 lots sold amounted to RM467 million while total Gross Development Value (GDV) of the development is expected to amount to RM1.15 billion.

For fiscal year 2006, MPSB’s revenue decreased by 48% to RM11 million against RM21 million in the previous year. The decrease which was attributable to a lower volume of progress billings from the construction of bungalow houses stemming from the delay in securing its housing developer license. Having obtained its developer license only at the end of FY2006, the company was unable to promote the sale of bungalow houses under the ‘design and build’ concept in the same year. In line with the drop in revenue, operating margin deteriorated to 2.8% compared to 21.9% in the previous year. Lower gross margins from bungalow houses as well as expenses relating to the CP/MTN facility issuance contributed to the drop in the operating margin. MARC is of the view that, MPSB will be able to improve its results for FY2007 now that the company is in a position to expedite the progress of its Country Heights Damansara development.  

Cash flows protection measures are constrained by the repayment of RM94.7 million of bank loans owing by related companies of MPSB. As a result of the repayment, the company’s cash flow coverages were in deficit and is expected to remain in deficit in the near term.
MPSB’s past financial flexibility has been affected by the centralisation of their cash management at the ultimate holding company level. However, under the terms of the notes issuance, cash from the sale of properties and progress billings will be remitted into designated accounts.
 

The company’s borrowings solely relate to its bonds issue with a moderately strong shareholders funds amounting to RM68 million. This translates into a gearing ratio of 2.01 times which is still below the covenanted level of 2.5 times imposed under the issue structure. MARC expects no further borrowings to be undertaken by the company and that future operating cash flow would be adequate for debt service obligations under the CP/MTN programme.